June 3 (Bloomberg) -- The Reserve Bank of Australia kept
its benchmark cash rate at a record low as fiscal consolidation
adds to a mining investment slowdown as a brake on growth.

The key rate was held at 2.5 percent for a 10th month,
Governor Glenn Stevens and his board announced in Sydney today,
repeating an expectation for “a period of stability” in rates.
The decision was predicted by all 32 economists surveyed by
Bloomberg and markets had priced in almost no chance of a move.

Stevens noted “signs of improvement in investment
intentions” in non-resources industries, and dropped a
reference to weakness in the labor market. On the currency, he
said it “remains high by historical standards, particularly
given the further decline in commodity prices.”

Prices of iron ore, Australia’s biggest export, capped a
sixth monthly drop in May in the longest losing run on record as
rising supplies from Australia and Brazil spurred a global glut.
Consumer confidence has been dented by spending cuts announced
in Treasurer Joe Hockey’s budget last month, which the central
bank has flagged as a headwind for growth, along with a drop in
resource investment.

“The RBA’s earlier rate cuts are bearing fruit,” said
Katrina Ell, an economist at Moody’s Analytics in Sydney. “The
labor market is healing, and export volumes are strong thanks to
earlier investment. The RBA is mindful that the economic
recovery is fragile, not least because of fiscal consolidation
and lower mining investment, so rates will likely remain
accommodative at 2.5 percent through 2014.”

Housing, Employment

With a pickup in housing and resilient employment balancing
the outlook, traders expect the RBA will remain sidelined this
year, weighing the effect of its 2.25 percentage points of cuts
from late 2011 to August 2013.

The Australian dollar was little changed after the decision
and has gained about 3.8 percent this year, the biggest advance
among group of 10 currencies. Traders are pricing in 5 basis
points of increase to the benchmark cash rate over the next 12
months, according to an index of swaps from Credit Suisse Group
AG in Sydney today.

Australia’s treasurer last month announced cuts to spending
on welfare and the public service and a new tax on the highest
paid. Consumer confidence fell to its lowest level since August
2011, prior to the central bank’s most recent easing cycle,
after the budget’s May 13 release.

Subdued Spending

“Public spending is scheduled to be subdued,” Stevens
said.

The labor market has held up, with the jobless rate
remaining at a better-than-expected 5.8 percent in April.
Lending too is responding to low borrowing costs, with private-sector credit expanding 4.6 percent in April from a year
earlier, the fastest pace since March 2009, central bank data
showed.

Home prices slipped 1.9 percent in May from a month
earlier, according to RPData-Rismark’s Hedonic Home Value Index
report released in Sydney yesterday, the first drop in a year.
Melbourne led declines with a 3.6 percent drop.

“Dwelling prices have increased significantly over the
past year, though there have been some signs of a moderation in
the pace of increase recently,” Stevens said in today’s
statement. “Monetary policy remains accommodative.”